Norquist Is Right and Coburn Is Wrong: Tax Increases Will Lead to More Spending, Not Lower Deficits

There’s a significant debate now taking place in Washington – largely behind closed doors, but sometimes covered by the media – on whether fiscal conservatives should maintain a rigid no-tax-increase position. One side of the debate features Grover Norquist of Americans for Tax Reform, which is the organization that maintains the no-tax increase pledge. The other side features Senator Coburn of Oklahoma, who is part of a small group of GOP Senators who might be willing to increase the tax burden as part of a deal that supposedly reduces deficits.

I’m a huge fan of Senator Coburn, who was in favor of cutting wasteful spending before it became fashionable. His office, for instance, releases a “Pork Report” every couple of days. But you shouldn’t read it if you have high blood pressure, because it will confirm (and reconfirm, and reconfirm, ad nauseum) your worst fears about tax dollars getting wasted.

But don’t believe me. Here is a chart from the House Budget Committee showing long-run projections for spending and revenues over the next 70 years. As you can see, the long-run fiscal shortfall is completely caused by higher spending. In other words, 100 percent of red ink is due to government spending. So why put taxes on the table?

But this chart actually understates the case against tax increases. It uses revenue numbers from the Congressional Budget Office’s “alternative” forecast, which shows taxes steady at 19.3 percent of GDP. That’s more than the historical average of about 18 percent of GDP, which surely indicates that revenues are not the problem.

However, that 19.3 percent estimate is completely artificial. As CBO states in its long-run forecast, “the alternative fiscal scenario also incorporates unspecified changes in tax law that would keep revenues constant as a share of GDP after 2020.”

I’ll actually be delighted if we can permanently keep federal revenues below 20 percent of GDP, but I’m not overly optimistic because the tax burden is projected to automatically increase over time. And I’m not talking about the expiration of the Bush tax cuts or the alternative minimum tax. Yes, those factors would push up tax revenues (at least based on static revenue estimates), but the tax burden also is expected to climb because even modest economic growth slowly but surely pushes more and more people into higher tax brackets.

This second chart shows CBO’s estimate of personal income tax revenue based on current policy (as opposed to estimates based on current law, which includes already legislated tax hikes). To be more specific, it shows how much revenue the government will collect from the individual income tax even if the 2001 and 2003 tax cuts are made permanent and the AMT is indexed.

As you can see, the aggregate individual income tax burden will increase by roughly 5 percentage points of GDP when compared to the long-run average of about 8 percent of GDP (the CBO estimate only goes to 2035, so I extrapolated to show the same time period as the first chart). And remember, this is the forecast of what will happen to income tax revenues even if politicians don’t impose any new laws to coercively extract more revenue.

This might not be too bad if other taxes were falling, but that’s not what CBO is projecting. As such, this big increase in revenue from the individual income tax means that the overall tax burden will climb by approximately the same amount.

In other words, revenue likely will rise close to 25 percent of GDP as we approach the next century. So if we use this more realistic baseline, we can say that more than 100 percent of the long-run deficit problem is because spending is out of control.

The second reason for a firm no-tax increase position is that higher taxes are a very ineffective way of reducing budget deficits. Indeed, tax increases generally backfire and lead to more red ink. To understand why, it’s important to put away the calculator and instead consider the real world of politics and public policy. For instance:

o Tax increases rarely raise as much revenue as predicted by government forecasters. This is because of “Laffer Curve” effects, as taxpayers change their behavior to earn less income and/or report less income. Simply stated, people respond to incentives, and this means taxable income falls as tax rates increase.

o Tax increases erode pressure to control spending. Why would politicians want to make tough decisions and upset special interest groups, after all, when there is going to be more revenue (or at least the expectation of more revenue)? Using more colloquial language, trying to control spending with higher taxes is like trying to cure alcoholics by giving them keys to a liquor store.

o Milton Friedman was right when he said that, “In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with.” In other words, if politicians think they can get away with deficits averaging, say, 5 percent of GDP in the long run, then the the only impact of higher taxes is an equal amount of additional spending – while still retaining deficits of 5 percent of GDP.

The real-world evidence certainly points in this direction. We’ve seen “bipartisan budget summits” several times in Washington, and the result is more spending rather than lower deficits. Americans for Tax Reform has a good analysis of what happened after the two big budget summits in 1982 and 1990, but I think the problem is best captured by my adaptation of a famous Peanuts cartoon strip.

Every year, if my aging memory is correct, Lucy would ask Charlie Brown if he wanted to kick the football. At first, Charlie was skeptical. But Lucy always managed to trick him into giving it a try. And the inevitable result was Charlie Brown lying on his back wondering why he had been so foolish.

In the Washington version of this cartoon, Democrats hypnotize gullible Republicans with ostensibly sincere promises of future spending restraint. Republicans eventually acquiesce, naively assuming that Democrats will be their new best-friends-forever in the fight against big government.

Like Ronald Reagan, Tom Coburn wants to do the right thing. But good intentions are not the same as good policy. America’s fiscal challenge is too much spending. Government is too big and it is wasting too much money. Taking more money from the American people is not the way to solve that problem.

[…] many policy makers focus on the budget deficit, which often makes them susceptible to misguided policies such as higher taxes. At best, such an approach merely substitutes one bad way of financing federal spending with […]

[…] many policy makers focus on the budget deficit, which often makes them susceptible to misguided policies such as higher taxes. At best, such an approach merely substitutes one bad way of financing federal spending with […]

[…] many policy makers focus on the budget deficit, which often makes them susceptible to misguided policies such as higher taxes. At best, such an approach merely substitutes one bad way of financing federal spending with […]

[…] many policy makers focus on the budget deficit, which often makes them susceptible to misguided policies such as higher taxes. At best, such an approach merely substitutes one bad way of financing federal spending with […]

[…] many policy makers focus on the budget deficit, which often makes them susceptible to misguided policies such as higher taxes. At best, such an approach merely substitutes one bad way of financing federal spending with […]

[…] many policy makers focus on the budget deficit, which often makes them susceptible to misguided policies such as higher taxes. At best, such an approach merely substitutes one bad way of financing federal spending with […]

[…] many policy makers focus on the budget deficit, which often makes them susceptible to misguided policies such as higher taxes. At best, such an approach merely substitutes one bad way of financing federal spending with […]

[…] many policy makers focus on the budget deficit, which often makes them susceptible to misguided policies such as higher taxes. At best, such an approach merely substitutes one bad way of financing federal spending with […]

[…] fighting about taxes. But they’re fighting with each other, not Democrats. I’ve already written about this topic once, but the issue has become more heated, and the stakes have become much larger. And this time […]

[…] are fighting about taxes. But they’re fighting with each other, not Democrats. I’ve already written about this topic once, but the issue has become more heated, and the stakes have become much larger. And this time I’m […]

[…] fighting about taxes. But they’re fighting with each other, not Democrats. I’ve already written about this topic once, but the issue has become more heated, and the stakes have become much larger. And this time […]

[…] fighting about taxes. But they’re fighting with each other, not Democrats. I’ve already written about this topic once, but the issue has become more heated, and the stakes have become much larger. And this time […]

[…] are fighting about taxes. But they’re fighting with each other, not Democrats. I’ve already written about this topic once, but the issue has become more heated, and the stakes have become much larger. And this time I’m […]

[…] 1. There will be civil war inside the Republican Party. The vast majority of GOP politicians have pledged to vote against higher taxes. Some of them are insincere, of course, but many of them genuinely believe if defending taxpayers. […]

[…] 1. There will be civil war inside the Republican Party. The vast majority of GOP politicians have pledged to vote against higher taxes. Some of them are insincere, of course, but many of them genuinely believe if defending taxpayers. […]

[…] I’m just old fashioned, or maybe I’m a bit stiff-necked, but I will never relent in my opposition to tax increases so long as the crowd in Washington is spending money on things that are not appropriate functions […]

[…] June 30, 2011 by Dan Mitchell For both political and policy reasons, the left is desperately trying to maneuver Republicans into going along with a tax increase. And they are smart to make this their top goal. After all, it will be very difficult – if not impossible – to increase the burden of government spending witho…. […]

[…] For both political and policy reasons, the left is desperately trying to maneuver Republicans into going along with a tax increase. And they are smart to make this their top goal. After all, it will be very difficult – if not impossible – to increase the burden of government spending without more …. […]

[…] For both political and policy reasons, the left is desperately trying to maneuver Republicans into going along with a tax increase. And they are smart to make this their top goal. After all, it will be very difficult – if not impossible – to increase the burden of government spending without more …. […]

[…] What makes the editorial so remarkable is that Mr. Tedeschi not only understands economics – as illustrated by his discussion of how higher tax rates discourage productive behavior, but his grasp of real-world politics. He recognizes that higher taxes will simply lead to higher spending. […]

[…] There are several problems with this passage, including the (perhaps deliberate) mixing of tax evasion and tax avoidance. But the key point is that the burden of government spending in most nations is now at record levels, undermining prosperity and reducing growth. Why should add more fuel to the fire by giving politicians even more money to waste? […]

The 1982 tax increase mentioned in this article was actually, in terms of helping things it was supposed to help, the most effective tax increase ever. It came with simultaneous reductions in Social Security benefits, and by 1989, resulted in an actuarially balanced social insurance system. In fact, in 1989, Social Security had a large current cash flow surplus, and a long-term (75 years) actuarial surplus. This never happened again. While Ronald Reagan was humble, and properly took into account a possibility of being wrong about the 1982 deal, we should note that the official public debt increase during his Presidency was well balanced by dramatic improvement in the financial status of social insurance, so it may have been an error in terms of encouraging Congress to spend, but it was, at worst, a small error, matched with a lot of things done right. If only people who followed him made only errors like this.

We don’t need to raise taxes or or come up with new players tofigure out what’s wrong with our government spending. WE ARE BROKE! so what happens when a business has no mre money? You look and see where you need to cut and stop the money from going out for example: Going out to countries that hate us. Going out to countries to help rebuild. Going out to useless research (do we really need to know about shrimp on tread mills?).
We need to stop paying the people in government. after all WE ARE BROKE.
We need to get back control of our government, they work for us, We pay their wages. Did you give them their out-rageous wages?? No they vote them in themselves. It’s time to stop this kind of wastful spending. Also, when you lose your job does tour ex-boss still pay you? NO. So why are we paying people who are no longer in government???

[…] is overwhelming that any new tax revenue will be used to make government even bigger. Heck, the cartoon in this post is a disturbingly accurate description of what’s happening. Rate this: Share […]

[…] level with the American people and admit that they want the tax burden to climb even faster because they want government to get even bigger. Rate this: Share this:PrintEmailFacebookTwitterMoredeliciousDiggFarkLinkedInRedditStumbleUponLike […]

[…] level with the American people and admit that they want the tax burden to climb even faster because they want government to get even bigger. jQuery('#lazyload_post_0 img').lazyload({placeholder: […]

[…] I suppose that’s a noble sentiment, though I find that most GOPers who are open to tax hikes also tend to be big spenders, so I question their sincerity (with Senator Coburn being an obvious exception). […]

[…] I suppose that’s a noble sentiment, though I find that most GOPers who are open to tax hikes also tend to be big spenders, so I question their sincerity (with Senator Coburn being an obvious exception). […]

[…] I suppose that’s a noble sentiment, though I find that most GOPers who are open to tax hikes also tend to be big spenders, so I question their sincerity (with Senator Coburn being an obvious exception). […]

[…] After all, most leftists don’t openly admit that they want higher taxes to make government bigger. They always hide behind the fig leaf of “deficit reduction.” Needless to say, any additional revenue almost always is used to expand the burden of government spending. […]

[…] gulf between the political elite and regular Americans. And any initiative to boost the tax burden would lead to the same result. Rate this: Share this:PrintEmailFacebookTwitterMoredeliciousDiggFarkLinkedInRedditStumbleUponLike […]

[…] Norquist Is Right and Coburn Is Wrong: Tax Increases Will Lead to More Spending, Not Lower Deficits …. Invaluable charts and data. Every tax opponent needs this. This entry was posted in News. Bookmark the permalink. ← Chart-Mad Men Liasons […]

[…] gulf between the political elite and regular Americans. And any initiative to boost the tax burden would lead to the same result. Daniel J. Mitchell • February 22, 2012 @ 4:05 pm Like this:LikeBe the first to like this post. […]

Next time I read a blog, Hopefully it does not fail me just as much as this one. I mean, Yes, it was my choice to read, but I truly thought you would have something useful to say. All I hear is a bunch of crying about something you could possibly fix if you weren’t too busy seeking attention.

[…] have no idea if Congressman Crawford is simply naive, unaware that tax-increase deals inevitably lead to higher spending and more red ink. Or perhaps he’s trying to become the kind of Republican who thinks he can advance his career […]

[…] have no idea if Congressman Crawford is simply naive, unaware that tax-increase deals inevitably lead to higher spending and more red ink. Or perhaps he’s trying to become the kind of Republican who thinks he can advance his career by […]

[…] have no idea if Congressman Crawford is simply naive, unaware that tax-increase deals inevitably lead to higher spending and more red ink. Or perhaps he’s trying to become the kind of Republican who thinks he can advance his career by […]

[…] I suppose that’s a noble sentiment, though I find that most GOPers who are open to tax hikes also tend to be big spenders, so I question their sincerity (with Senator Coburn being an obvious exception). […]

[…] I’ve decided the title of this post is inaccurate. The left isn’t wrong. They know the higher taxes lead to higher spending, and they know the VAT is a money machine for big government. They just don’t publicly admit […]

[…] For most of us, the answer is obvious. But, then again, there’s a reason the GOP is known as the “Stupid Party,” which is why the modified cartoon in this post showing Charlie Brown, Lucy, and a football is so appropriate. […]

[…] For most of us, the answer is obvious. But, then again, there’s a reason the GOP is known as the “Stupid Party,” which is why the modified cartoon in this post showing Charlie Brown, Lucy, and a football is so appropriate. […]

[…] Gullible Republicans seem to think this is just peachy keen, but here is the work of some cartoonists with a more realistic assessment. We’ll start with my favorite, if for no other reason than it builds upon a cartoon I created for this 2011 post. […]

[…] Gullible Republicans seem to think this is just peachy keen, but here is the work of some cartoonists with a more realistic assessment. We’ll start with my favorite, if for no other reason than it builds upon a cartoon I created for this 2011 post. […]

[…] so pathetic is that Republicans normally get seduced into tax increases because of stupidity. As the Charlie Brown parody indicates, they get tricked into believing higher revenues will be used to lower […]

[…] Gullible Republicans seem to think this is just peachy keen, but here is the work of some cartoonists with a more realistic assessment. We’ll start with my favorite, from Robert Ariail, if for no other reason than it builds upon a cartoon I created for this 2011 post. […]

[…] Gullible Republicans seem to think this is just peachy keen, but here is the work of some cartoonists with a more realistic assessment. We’ll start with my favorite, from Robert Ariail, if for no other reason than it builds upon a cartoon I created for this 2011 post. […]

[…] Gullible Republicans seem to think this is just peachy keen, but here is the work of some cartoonists with a more realistic assessment. We’ll start with my favorite, from Robert Ariail, if for no other reason than it builds upon a cartoon I created for this 2011 post. […]

[…] tax-hiking budget deals, which inevitably lead to bigger government and more debt. Honoring the no-tax-hike pledge isn’t a sufficient condition to rein in big government, but it sure is a necessary condition. […]

[…] tax-hiking budget deals, which inevitably lead to bigger government and more debt. Honoring the no-tax-hike pledge isn’t a sufficient condition to rein in big government, but it sure is a necessary condition. […]